Corporation tax should increase, but for none of the reasons it thinks

Posted on January 18 2021

Paul Lewis correctly, I am sure, assumes an official source for this comment in The Times:

By clicking on the image in the tweet The Times article can be read.

I happen to entirely support the idea of a corporation tax increase in March, but for none of the reasons suggested in the article.

As a matter of fact the coronavirus crisis has already been paid for. As a matter of additional fact, there is no additional debt due as a result of it to date. The payment has been made using new money created by the Bank of England for that purpose, whether it agrees with that suggestion or not. So, no repayment is required.

Nor is there a point of principle or fairness about repayment being required here. How can it be fair to demand repayment of a sum not owed?

But that does not mean that the isn't good reason for a corporation tax increase. Firstly, that's because companies are already heavily under taxed in the UK. Large UK companies pay less than the OECD average rate, by some way. Small companies pay at a rate below the standard income tax rate, which is a simple invitation to abuse. And no company makes payment in that case to society for the moral hazard that they create within it as a consequence of the limited liability their members enjoy. These facts require an increase in rate.

And the increase would be fair: companies who made a loss during the pandemic would not pay it. Only those who gained would do so.

But there still remains a critical point to make. If the Exchequer does not need this money - and it most definitely does not as even at the most superficial level money creation balanced its books in the last year - then the revenue must be redistributed to those in need. That would be fair and appropriate. Just because additional revenue is not needed does not mean that the goal of redistribution goes out of the window.

So the Treasury should increase corporation tax, but for none of the reasons it thinks appropriate, and not for its own gain. Apart from that, it got everything right.

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4 Responses

  1. Andrew says:
    January 18 2021 at 10:54 am

    As with CGT, this is a soft target. I was not aware of anyone in business seriously arguing that corporation tax should have been cut from 30% in 2008, let alone falling below 20%. Corporation tax is a tax on profits and gains, and both dipped for many companies in the aftermath of the 2008 financial crisis anyway. That said, corporation tax receipts picked up substantially in 2016-17 and 2017-18, above £50 billion and so above the level in 2007-08. I bet 2020-21 is not so pretty.

    As to attracting international business (or encouraging businesses already in the UK to stay) the tax base is just as important as the rate, and while headline rates of 19% are attractive, the complex rules for UK corporation tax are not. Companies for whom the headline tax rate (or even the effective tax rate) is the only consideration would not be based in the UK anyway. There are plenty of jurisdictions ahead of us in the race to the bottom, although there seems to be a fair head of steam in the OECD proposals to tackle some of that. For most companies, other factors – Brexit, for example – are just as or more important than headline tax rates.

  2. Bill Hughes says:
    January 18 2021 at 11:30 am

    If the Singapore on Thames project goes ahead wont this contravene the level playing field agreement with the EU? The big companies consulted wont like it if the EU imposes high tariffs on trade with the UK in retaliation.